The New Retirement

May 11, 2015

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For many Americans, the definition of “retirement” is
changing to include work—at least part time. Among Baby Boomers, more than half
(52%) plan to continue working after they retire, according to a report
released last December by the Transamerica Center for Retirement Studies. The
earlier that people understand that reality, the better.

A Changing Picture

Many retirement-age Americans continue to work and seek jobs
now. An AARP study released a year ago January, “Staying Ahead of the Curve
2013: The AARP Work and Career Study,” found 54% of workers ages 65 to 74
classify themselves as retired and working. Among those labor-force
participants, 34% say they work full time, 35% work part time, 19% are
self-employed, and 13% are looking for work.

The Great Recession hit many Baby Boomers hard, says Sara
Rix, senior strategic policy adviser at AARP, in Washington, D.C. Many
experienced job loss and financial pressures that caused them to withdraw money
from their 401(k) account, take a loan or increase credit card debt. In 2010,
when AARP surveyed 5,027 current or recently working and job-seeking Americans
ages 50 and older for its study “Boomers and the Great Recession: Struggling to
Recover,” it found that 17% of them were jobless and looking for work, another
13% had jobs but had been involuntarily unemployed at some point in the
previous three years, and 10% had left the labor force within the previous
three years and were not looking for work. Even those who were able to keep
their jobs frequently saw declining home values and stock market fluctuations
that spooked them.

The American concept of leaving the work force to enjoy
years of leisure “already is changing, like it or not,” says Maddy Dychtwald,
co-founder and senior vice president at Age Wave, citing two prominent reasons.
One is that people are living longer than ever before. The average life
expectancy in the United States is 79. Second, Dychtwald points to the Baby
Boomers, who make up about one-third of the U.S. population. They are hitting
their traditional retirement years, and, frankly, they’re not well-prepared for
retirement.

Most Americans approaching retirement need help
understanding the fundamentals. Just 20% of Americans ages 60 to 75 could pass,
with a score of 61 or higher, a basic quiz on how to make their nest eggs last
throughout retirement, according to the RICP.

How Advisers Can Help

Simply developing a PowerPoint presentation tailored for a
group meeting of participants ages 50 and older does not help them enough,
adviser Jordan Gelb has learned. Working with people individually, and giving
them the necessary tools, allows them to come up with a personalized plan.

Participants need to start by understanding where they stand
now on retirement savings, and he encourages participants to use the Merrill
Advice Access retirement calculator, which tells them the probability that they
can replace sufficient income in retirement.
Advisers can help those age 50-plus participants plan for an extended
career by focusing on these areas:

• Assessing
longevity and health issues. Pre-retirees need to consider how long
they likely will live, a tough topic. Encourage people to start comprehending
it by asking about their family history. People can use the Life Expectancy
calculator on the Social Security Administration (SSA) website’s calculators
page to get a ballpark estimate. Pre-retirees
also need to think about their health issues in terms of how long they
realistically can work.

• Understanding
Social Security. Advisers can help make it clear how much people can
gain by continuing to work in retirement. People can use the Retirement
Estimator tool, available from the main page of the Social Security
Administration website, to project their benefit. For instance, someone with a
full retirement age of 66 who would receive $1,000 a month if he started
claiming the Social Security benefit at 66 would see that benefit reduced to
$750 if he were to claim at 62, but increased to $1,320 if he were to claim at
70.

It often makes sense financially to work part time, and even
to start drawing on a 401(k) balance as well, in order to delay taking Social
Security. Additionally, people thinking
about working in retirement should remember that if they begin Social Security
during that time, they may owe taxes on part of their benefit if they exceed
certain income thresholds. The amount subject to taxation varies based on
income level and whether someone files individually or with a spouse.

• Setting a
realistic budget. Many retirees will make less than they would like
working part time, so they need to downsize their lifestyle by reducing
post-retirement expenses. Pre-retirees need to think about demands such as
paying off their mortgage, funding their children’s college education and
eliminating any other debt, Tower Rock Managing Director Tom Ming says. Tower
Rock uses the guideline that people who have paid off their debt can safely
live off of 70% to 75% of their pre-retirement income in retirement.

Pre-retirees also need to plan for how they will pay for
health care, which, Empower Retirement’s Murphy says, many do not consider. Many pre-retirees fear going into the “black
hole” of dealing with these sorts of nuts and bolts of retirement. This is
where an adviser’s guidance on what steps to take to meet these needs can be
instrumental.